SOUTH ATLANTIC

COUNCIL

OCCASIONAL PAPERS

No. 7 August 1989

ARGENTINE-BRITISH TRADE AND THE
SOUTH ATLANTIC CONFLICT

By Alan Tabbush, FBIM, FRSA.

One of the lasting consequences of the conflict in the South Atlantic in 1982 has been the reduction of trade between the United Kingdom and the Argentine Republic to a small fraction of what it was or, indeed, of what it ought to be. British exports to Argentina amounted to £173 million in 1980 and £161 million in 1981 and were continuing at this rate until April 1982. Imports from Argentina were £114 million in 1980 and £137 million in 1981. Two-way trade therefore amounted to about £300 million; this would be equivalent to £450 million today just to keep up with inflation and assuming no growth in volume. Table 1 shows total UK exports to Argentina from 1980 to 1987, as well as principal exports under various headings. Total UK imports and principal UK imports from Argentina for the same period are given in Table 2. In the context of UK world exports (£70,000 million a year), the figures appear small, but they are significant as a part of trade with Latin America which is now of the order of £1,500 million a year (see Table 3).

Since the end of the Second World War, the pattern of trade between the United Kingdom and Argentina has gradually changed and its relative importance to Argentina has decreased. The sale of British assets in Argentina and consequent reduction of British investment is one of the reasons for the decline, but so is the change in world trading brought about by the formation of, and Britain’s accession to, the European Community, which directly and adversely affected Argentina’s meat exports.1 In the immediate post war years, British efforts to export seem mainly to have been directed to Commonwealth countries. The oil price rises in the early seventies led to greatly increased sales to the Middle East. This did not mean, however, that Latin America was completely neglected. Large British industrial exhibitions took place in Venezuela, Argentina, Brazil and Mexico in the

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late sixties and early seventies. Trade missions visited the area then as now. In particular, a very large British industrial exhibition was opened in Buenos Aires in 1970 by HRH Princess Alexandra, in the presence of President Levingston. At the time of the Argentine invasion of the Falkland Islands, the British Chapter of the Argentine-British Joint Committee for Trade and Investment, which meets at Canning House in London, was planning (with the help of the Department of Trade) to hold a technology symposium in Buenos Aires later that year.

1. British Investment in Argentina

Though less in real terms now than at the end of the Second World War, British investment in Argentina is nevertheless important. Various estimates have been made of its worth, not least at the beginning of the South Atlantic conflict. In a message sent to the Prime Minister from Buenos Aires on 15th April 1982, the Chairman of the British Chamber of Commerce in the Argentine Republic, Sr. Alberto Molinari, said that the members of the Chamber “account for an aggregate (United Kingdom) investment of over £500 million”. According to the Department of Trade, “in 1976, UK investment was valued at $437 million, 9.5% of total foreign investment registered in Argentina. The UK share in September 1979 had fallen slightly to 8%”.2

The phrase ‘foreign investment’ needs to be clarified because of the distinction between direct investment and indirect or portfolio investment. Until recently, economists considered as direct investment those sums controlled directly from the home country and which did not pass through the recipient country’s stock exchange. Nowadays, portfolio and joint venture investments are also included in the figures.

In 1910, British investments were mainly in government bonds, railway securities, land and public utilities, in that order of importance. The pattern of investment changed as time passed; the railways, for example, were sold in 1947 (for £150 million). Jones shows that British direct investment in Argentina declined after the First World War both in relation to total Argentine fixed capital and in relation to total British overseas investment.3 However, investments of the kind mentioned declined in other parts of the world as well. At the same time, British overseas investment in manufacturing industries grew, though at different rates, in Australia, Canada, Brazil, India and Argentina. Examples in Argentina can be found in pharmaceuticals, chemicals, diesel engines and glass.

The difference in the various figures quoted for current British investment in Argentina probably arise from whether or not the substantial Anglo-Dutch investments of Shell and Unilever are attributed to Britain or to the Netherlands. Whatever British investment in Argentina is agreed to be, it is not negligible. However, in a climate of Argentine economic recovery new opportunities for investment will arise, but in present circumstances Britain is unlikely to take advantage of them. Even now an agreement between Italy and Argentina concluded on 8 December 1987 is expected to lead to $4,500 million of investment in Argentina by 1992, many times more than the level of British investment today.

[End of p. 2.]

2. An historical backcloth to trade sanctions

The sudden re-emergence of the old Falklands/Malvinas dispute on 2nd April 1982 in so drastic a manner immediately gave rise to anxiety for the British community in Argentina and for trade relations. In official circles on both sides the Falkland Islands question was always regarded as a potential threat to trade relations between the two countries, but there seems to have been little concerted pressure applied on the British Government to settle the dispute by British companies trading with and/or having investments in Argentina. The British Chapter of the Argentine- British Joint Committee for Trade and Investment used to place the Falkland Islands question regularly on the agenda because the then Chairman, T.H. Prothero, regarded it as a potential threat and no doubt wished to bring it to the attention of the authorities. However, it was subsequently dropped when little progress was seen to be likely.4 Much progress had been made at the time of the Argentine invasion of the islands with plans to hold a technology symposium in Buenos Aires later that year; the Department of Trade was working closely with the Joint Committee and with the British Embassy to this end.

In the period from 13th April to 19th May 1982, almost daily telephone contact was maintained with the Chairman of the British Chamber of Commerce in the Argentine Republic, reflecting the great concern there was for the British community and for British interests. On 15th April the following impassioned message was sent by the Chairman of the British Chamber of Commerce, Sr. Alberto F. Molinari, to the Prime Minister, Rt Hon Mrs Margaret Thatcher MP:

The British Chamber of Commerce in the Argentine Republic (Inc.) represents many and important British and Argentine companies with industrial, trading or financial interests in Argentina and the United Kingdom. Within Argentina, its members employ over 10,000 persons and account for an aggregate investment of over £500 million. They are primarily responsible for generating a bilateral flow of goods and services in the order of £1,000 million per year.

Ever since its foundation in 1913 the Chamber has been actively engaged in the furtherance of economic relations between the two countries. As such, it has witnessed the development of a fruitful partnership between Argentine and British interests. Generations of Britons have chosen to work and live in Argentina, and, in many cases, have settled and integrated permanently into the local community where they found respect and even admiration for British values and way of life, and never at any time have regretted their decision.

Our Chamber is therefore most seriously concerned because that long history of friendship is now at stake, to the detriment of the many individuals and companies of British origin or affiliation present in Argentina, putting at risk a relationship developed over more than a century which may be destroyed in one day, but would require decades to repair. This concern extends also to what we believe is a lack of awareness in the United Kingdom with respect to the sincerity and intensity of the

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feelings of the Argentine people towards the issue under discussion ever since it arose 150 years ago, and their frustration after 17 years of fruitless negotiations.

This Chamber is anxious that a peaceful settlement to this problem be reached. The highest sense of mutual respect and consideration must prevail. The undeniable duty of every one and particularly of those who wield power is to demonstrate the most sincere willingness to carry through to a speedy and successful conclusion the negotiations which have already been initiated, the failure of which no reasonable person can accept .

We urge you to refrain from the use of force which at this point could only cause irreparable harm to all concerned and incalculable damage to the Western World and to strive to achieve an understanding which will allow a positive future to be built in the best interests of all, including the Islanders.

Plans were made for a small party of Anglo-Argentine businessmen to visit London to call on leading politicians and try to avert an escalation of what was already a very grave situation, but in the event the plans fell through. One British businessman resident in Argentina, however, Mr. Bruce Carlisle, did come over, arriving on 15th April, and stayed for some time in London, representing the British community. He called on members of the government and on other parliamentarians.

At the time much was made of the consequences of “pushing Argentina into the wrong (ie the Soviet) camp”. At the same time, representations were made in Argentina to the authorities, urging restraint. The British Chamber’s priorities in making such representations were first, to promote a peaceful solution to the problem, which had divided the two countries and which made the British community in Argentina particularly vulnerable, and, secondly, the protection of British interests in that country.

The same concerns were expressed in London at meetings at the Foreign and Commonwealth Office, held at the invitation of two of HM’s Ministers of State. The first was on 15th April, when the author called on Mr Cranley Onslow MP; the second on 20th April, when Viscount Montgomery of Alamein visited Lord Belstead.5 The government, said Mr Onslow, understood the position of the British community in Argentina and that of the business community. However, the Prime Minister had made it clear in the House of Commons, that the UK’s first priority as the aggrieved party was for Argentina to withdraw its troops, a position overwhelmingly endorsed by Parliament and the country (this referred to the implementation of UN Resolution 502). On 20th April the Prime Minister sent the following message to the British Chamber of Commerce in Argentina:

Thank you for your telegram about the situation in the Falkland Islands. I am aware of the important contribution which your Chamber has made to the development of industrial, commercial and financial links between Argentina and the UK, and the major role which these have played in the

[End of p. 4.]

development of Argentina. The British Government is, like your Chamber, concerned that the good relations which have existed between the two peoples are now at risk. However, this situation has not been of our seeking: it has been caused by the unprovoked aggression by the Argentine Government against the Falkland Islands and their dependencies.

We want a peaceful solution to the present crisis. We are making every effort to achieve one. However this must be on the basis of the mandatory resolution passed by the Security Council of the UN, which calls for an immediate withdrawal of Argentine Forces. Any intensity of feeling in Argentina on this subject is fully matched by the outrage at Argentina’s invasion felt here. If the Argentine Government’s attempt to impose its views by force on the people of the Falkland Islands, who have many times made quite clear their determination to remain British, were allowed to succeed, there would be the gravest consequences for peace, security and the rule of law, not only in the South Atlantic, but in the wider world also.

In Argentina, the British Chamber of Commerce was intensely preoccupied. It thought that it was necessary to have a lobby to speak on behalf of the British community, whose interests were seriously threatened. There was talk of nationalising British companies such as ICI, Glaxo, Shell and Lloyds Bank International. Laws of national mobilisation and defence would be invoked and emergency legislation prepared to affect what would be considered enemy property. There was a feeling of helplessness: members of the community were distressed because they thought their interests were not being taken into account and they were being “abandoned to the wolves”.

This despair was reflected in a second cable sent by the Chairman of the British Chamber of Commerce to Mrs Thatcher on 6th May 1982, by which time the conflict had begun in earnest:

Tragic loss of life resulting from the escalation of hostilities drives us to bring to your notice in the strongest possible terms the viewpoint of the members of the British Chamber of Commerce in the Argentine Republic, who, based on contact with hundreds of thousands of Argentines spread across the country, must inform you that there is the fullest support from the whole population for the action being taken by the Argentine Government. In the light of the known facts, we believe there is no way in which the continued use of force could produce anything other than a no win situation at an unacceptably high cost of human life, including lives of the islanders.

We sincerely believe that were negotiations to take place, the Argentine Government would be willing to more .than accommodate the Islanders’ interests and therefore urge you to enter into a cease fire, enabling negotiations which deal squarely with all the issues, thus preventing the inevitable further deterioration of relationships throughout Latin America and the world.

[End of p. 5.]

Copies of this message were sent to the leaders of the Labour, Liberal and Social Democrat parties. A similar representation was made to the Argentine Government.

3. The onset of trade sanctions

Both countries were quick to take action on trade. On 5th April 1982, the Secretary of State for Trade, the Rt Hon Mr. John Biffen MP, announced that with effect from midnight on 3rd April 1982:

1)all Argentine financial assets in the United Kingdom would be frozen;

2)the Export Credit Guarantees Department would not provide new export credit cover for Argentina, and

3)exports of arms and military equipment to Argentina were prohibited.

A similar statement was made in the House of Lords. No assurances were obtained from the government regarding compensation to British firms suffering losses because of the interruption of trade with Argentina and regarding losses in respect of Export Credit Guarantees. On 5th April 1982, the Secretary of State for Trade declared that there was no general ban on exporting to Argentina; the exception was the export of arms and military equipment referred to above.

A further announcement was made on 6th April by one of the Department of Trade and Industry ministers, Mr Peter Rees MP, to the effect that from midnight 6th April all imports from Argentina would be banned and any existing import licences would be revoked. However, the government would consider applications for licences to import goods shown to have been in transit to the UK before the ban took effect.6 At the time, the Export Credits Guarantee Department reckoned that its exposure in Argentina was around £300 million. On 10th April, the European Community agreed to impose a complete embargo on imports from Argentina.

On the Argentine side a number of measures were announced through communiqués (later enforced by government decrees) from the Central Bank, supplemented by resolutions of the Central Bank and of various ministries and government entities.7 The blocking of British assets was achieved by means of Law No 22591 passed on 21st May 1982. This did not affect the assets of British citizens permanently resident in Argentina. The measure restricted the disposal of assets, but not ordinary business operations. The law enabled the appointment of overseers or joint managers to be made to monitor the activity of British-owned companies and a National Surveillance Board was created with representatives of the President and the relevant ministries.8 The Board immediately proceeded to regulate the functions of the overseers and to forbid remittances of capital or profits abroad, the disposal of assets and the transfer of ownership of the companies affected, among other specific measures. All payments of interest and principal due on (he $5,800 million borrowed from British banks were suspended.9

After the armed hostilities had finished, some considerable relaxation of restrictions on financial and banking operations was achieved, prompted by the USA, as a result of talks in Toronto in September 1982 between Sir Geoffrey